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Slashing UK Public Pensions?
The FT reports, Value of public pensions falls by quarter:
Reforms
to public-sector pensions have already cut their value to the typical
employee by 25 per cent, according to a study by the Pensions Policy Institute.Further changes being considered by Lord Hutton, the former Labour cabinet minister, in his review of public-sector pensions could reduce the cost to the taxpayer by a third during the next 40 years.
That
would come at the price, however, of making the schemes appreciably
less generous, the institute said in a study funded by the Nuffield
Foundation, which is to be published on Tuesday.
Under
the most radical potential reform, the average earner would get just
over 40 per cent of their pay in retirement, against a current
replacement rate of 64 per cent.
“Changes that Labour and the
coalition government have announced will already reduce the cost of
public-sector pensions from 1.2 per cent of GDP [gross domestic
product] today to 1 per cent by 2050, even if the government undertakes
no further reform,” said Niki Cleal, the institute’s director.
A large part of the saving comes from the decision to increase the pensions in future using the consumer price index rather than the retail price index.
“That
has a really quite radical effect, which I am not sure most people
have fully understood,” said Ms Cleal. While the 0.2 per cent reduction
in GDP might not sound much, in today’s money it is £3bn.
The
changes already make public-sector pensions more affordable. That will
lead some people to argue that there is no need to do more,” she said.
“But as Lord Hutton has said,
there are arguments for making the present system fairer, both between
the public and the private sectors – where public-sector pensions
still remain more generous – and between staff within public-sectorschemes.
“Under the current final salary arrangements, high fliers do much better than lower earners.”
The
PPI has modelled a range of potential reforms. These include a switch
to career average pensions, which Lord Hutton has said he favours, and
other options he is considering such as providing a career average
pension up to a specified salary cap, and then a form of unfunded direct
contribution on top.
The PPI said the results depend on the assumptions used, but give a good guide to the potential impact of further reform.
And things are not much better at private pension plans. Insurance ERM reports, Pension deficits reduced but not the risk outlook:
While
October was positive for FTSE 100 UK pension schemes, with the overall
deficit reducing by £11.0bn to £43.5bn, it did little to improve the
risk picture, according to the first issue of PF Risk Report.
The
new publication from PensionsFirst, which provides advanced risk
management and advisory services to the defined-benefit pensions
industry, said that at the end of October, the one-month 95%
value-at-risk figure on an IAS19 basis was £25.4bn.
This
means that in November there was a 1-in-20 chance that the IAS19
deficit could increase by £25.4bn or more - and the expectation that in
one of the next twenty months it will. "The corresponding VAR figure at
September month-end was £26.6bn, so the improved deficit position
changed little from a risk perspective," commented the report.
The
PF Risk Report breaks down pension risk into its key components. On an
uncorrelated basis, interest-rate risk is the largest risk factor,
contributing £17.8bn to the VAR, closely followed by equity risk, which
contributes £15.7bn. The report also focuses on inflation, FX, credit
and property risk exposures, while ignoring longevity, which is a
genuine long-term risk exposure but has negligible volatility in the
short term.
The report illustrates the impact of the key
factors that could cause variation in deficits. For example, a 20%
decrease in equities would increase the aggregate deficit by £34.2bn
and a 1% increase in long-term inflation would increase the deficit by
£60.8bn. The two events combined would increase the deficit by almost
£100bn.
"The simple fact is
that many UK companies (not just those in the FTSE 100) have
significant unhedged exposure to financial market volatility through
their pensions schemes", the report stated.
The report
puts into context the expectation that the monthly accounting deficits
of the FTSE 100's UK pension schemes will move by £25.4bn at least once
in a two-year period by underlining the fact that in August 2010 the
accounting deficits increased by £20.8bn, driven primarily by a 60bp
fall in interest rates. "And it is important to note that while...such
large monthly movements can be reasonably anticipated, there is also
the potential for much more extreme outcomes," the PF Risk Report concluded.
It's
not just UK companies that have significant unhedged exposure to
financial market volatility through their pensions schemes. The problem
is widespread and as the report concludes, there is also potential for
much more extreme outcomes.
Finally, take the time to listen to this CBC interview with three experts discussing CPP reforms.
Pensions are a big issue everywhere right now, including here in
Canada. The discussion highlights important issues and is well worth
listening to.
»
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Hey, pension fund managers were the ones who were bad at math. Let the shortfall come out of their collective asses. Nothing as motivating as having a little skin in the game.
Just a moment please.......'Savage cuts to save £6Bn, but then ('unforseen') £7Bn to Ireland (oh sorry, that's a repayable loan) ......£60Bn unstoppable take by the EU 'stability' (stop laughing at the back!) ,fund' (waiting to hear next that is now to be per year)...... true UK debt circa 2 trillion, & rising. On the edge of overwhelming wouldn't you say?
No, sorry, public-sector & pensions? Why bother talking about it when the game is over; other than for something to do? - Yes that must be it.
Lol the government and public sectors are now cannibalisng each other as the money runs out
All government employees (Usa and UK) should be simply fired, terminated, this afternoon. The absurd pensions they were promised were nutty, and it is inconceivable they will ever get those pensions. They should not get a cent.
There are people pulling the cart, and people riding the cart. However the cart is now smashed and broken, and the people pulling are tired.
If you are a govmint employee of any type, you are simply getting a free ride. Everything in your life, every bean your children eat, is just money you have stolen from those pulling the cart.
Cancelling out the whacky gold-plated pensions is only one part of the problem, the main problem is that EVERYONE riding the cart - government employees - simply needs to get a life, go look after yourself, or starve.
You guys make is sound like slashing pensions are a bad thing....
There is a very serious possibility we have a BANK RUN December 7th. Please watch and share this video with the people you care about (http://youtu.be/U0KGv3Xw0KY).
Anonymous-
This is really scary guys, people are already talking about it and it has spread from France to the UK and now coming to the United States.
'Slashing UK Public Pensions?'
About goddam time.
The UK has the worst culture of dependency in the world and it cant afford all the handouts anymore.
the judges and politicos will be fine tho.
do all these public union/public employees truly believe they are going to receive these bloated, fraudulent agreed and promised IOUS from a real ponzi scam, PENSIONS
British Unions are on to "the end game" here. They'll stage a massive strike before they'll be forced down the path of insolvency as well. If it comes to that. The British Government might see these "financial weapons of mass destruction" as a threat as well "and join them."
Well are these pension funds fucking stupid. Do they not know that Ben has the stock market on put +5% trailing. God what the fuck are they stupid
The only class deserving lifetime $$$ support is the Royal family of Austria, of which I am one.
I will be visiting my subjects of Sarajevo in the not too distant future.
hrh ADF
How 'bout giving us a date & the itinerary for your visit?
I know this Serbian fellow who's looking for a job.....
But it's all good, because the billionaire bankster oligarchs who looted the pension funds to drive Britain's debt-to-GDP-ratio into the stratosphere will continue to get their billions in bonuses.
So because some guys at the top robbed the middle class, now it's ok for a million government union slobs at the bottom to rob us again?
News flash: real jobs don't have pensions. I don't get to work 20 years and then get a guaranteed chunk of my highest salary forever.
After I'm taxed for all the handouts to the non-working, I'm taxed again to pay the pensions of the semi-working, and *then* I get to try to save for my own retirement. Let them do the same. These open-ended pyramid scheme programs are either ended sensibly, or blow up.
Amen, brother.
I think what he was saying is that it's not you who should be taxed to pay for the pension shorfall, it's those "guys at the top who robbed the middle class".